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EU probes RBS alternative to Williams & Glyn sale

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EU probes RBS alternative to Williams & Glyn sale

Royal Bank of Scotland

(BRUSSELS) - The EU Commission is to investigate an alternative proposal from the UK to the Royal Bank of Scotland's commitment to sell Williams & Glyn as part of its restructuring plan.

The Royal Bank of Scotland is the leading bank in the UK SME banking market and received significant state support during the financial crisis.

"We can only accept this proposal, if it has the same positive effect on competition as the divestment of Williams & Glyn would have had," said Competition Commissioner Margrethe Vestager: "This is important for fair competition."

In 2009, the Commission approved under EU state aid rules the large public recapitalisation of RBS on the basis of the restructuring plan and associated commitments, which were amended in 2014. As part of this restructuring, the UK had committed to divest RBS's UK retail and SME banking operations, Williams & Glyn, to remedy competition concerns in the concentrated UK SME banking sector, where RBS is the leading bank.

RBS' efforts to divest Williams & Glyn have not met with success so far. It launched a new trade sale process in 2016. However, according to the UK authorities, RBS only received bids for parts of Williams & Glyn but not the full business, and they would not be completed before the sale deadline of 31 December 2017 under the commitments.

The UK authorities are therefore now seeking to amend the commitment with alternative measures, involving an estimated upfront cost for RBS of around £750 million plus an ongoing reduction in RBS's earnings. It includes:

  • a fund, to be administered by an independent body, that eligible challenger banks could access to finance the increase of their SME banking capabilities;
  • funding for eligible challenger banks to help them to encourage SMEs to switch their accounts from RBS to them;
  • RBS granting SME customers of eligible challenger banks access to its branch network, to support the above measures; and
  • an independent fund to invest in innovative financial services (mainly the financial technology industry – also known as FinTech).

According to the UK authorities, the alternative package, if accepted by the Commission, would remedy the distortion in the UK's SME banking market resulting from the state aid to RBS, with greater speed and certainty than would the divestment of Williams & Glyn.

The Commission says it needs equivalent commitments. It says it will review the responses received before taking a final decision on whether or not to accept the alternative plan, which if accepted would allow RBS to meet its final commitment under the state aid decision and swiftly close the case.

RBS is one of Europe's largest financial services groups. During the financial crisis, in late 2008, RBS was on the verge of collapse and has benefited from the following state aid measures: a recapitalisation of £45.5bn and an (eventually unused) five year contingent recapitalisation of £8bn; an impaired asset measure covering excess loss (which was terminated with RBS not having received any payments from the State, but instead paid a cumulative fee of £2.5bn for the participation) and guarantees and other liquidity measures (now fully repaid).

These aid measures resulted in the nationalisation of RBS (the UK Government currently holds 71.3% of RBS shares) and were accompanied by the restructuring of RBS approved by the Commission in 2009 and amended in 2014.

The non-confidential version of this decision will be made available under the case number SA.47702 in the State Aid Register on the competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.

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